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Monday, June 27, 2011

Green Disputes on the WTO's Horizon

Over the last year or so , I've frequently expressed concern about the potential for increasing trade frictions over green protectionism, i.e., anti-trade measures couched in allegedly environmental terms. ICTSD reports that the WTO will soon adjudicate two new green trade disputes which could have pretty significant ramifications (emphasis mine):

Environmental issues featured prominently in last week’s meeting of the WTO Dispute Settlement Body (DSB), as members deferred Japan’s first request for a panel on the Canadian province of Ontario’s green energy plan, while granting the Ukraine’s request for a panel to adjudicate its dispute with Moldova on discriminatory “environmental charges.”...

Ontario’s feed-in tariff (FIT) programme for renewable energy has been an area of contention between Ottawa and Tokyo since last autumn. Under the FIT programme, Ontario supports the generation of green energy by guaranteeing electricity purchase prices, grid access, and long-term contracts to renewable energy producers thus limiting their risks and supporting needed investments. Around 75 similar programmes are currently in place worldwide.

However, it was not the FIT programme itself but a local content provision within the programme that landed Canada at the WTO. To receive FIT support, renewable energy producers must ensure that a certain percentage of the goods and services used for setting up the facility comes from Ontario. This can be as high as 60 percent. Japan alleges that the measure violates the national treatment provisions of the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related Investment Measures (TRIMS).

Tokyo also claims that the local content requirement makes the FIT a “prohibited subsidy,” under the terms of the WTO’s Subsidies and Countervailing Measures (SCM) Agreement....

The Japan Ministry of Economy, Trade and Industry, in a 1 June press release on the dispute, cited concern over the “possible proliferation of such protectionist measures all over the world” as their motivation for seeking the WTO’s assistance on this matter. They noted that their consultations with Canada in October did not provide them with the intended result, given that Canada “raised a local content requirement from 50 percent to 60 percent on 1 January 2011.”...

The DSB established a panel for a dispute between Moldova and Ukraine this Friday; Ukraine had issued its initial panel request on 24 May, which Moldova blocked (see Bridges Weekly, 1 June 2011).

The Ukraine case stems from a 1998 Moldovan law that allows Moldova to apply charges to imports whose use contaminates the environment, in addition to other duties or taxes. The fee ranges from 0.5 to 5 percent of the customs value of those products.

Like the Canada - Renewables case, national treatment also plays a significant role in the Moldova - Environmental Charges dispute. Ukraine alleges that Moldova’s actions are in violation of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994, by not charging the same fees to like domestic products.

Ukraine also claims that Moldova charges importers an environmental fee for plastic or “tetra-pack” packages containing imported goods, without applying the same charge to like domestic goods.

The Ukraine case could provide an indication as to how a WTO panel might resolve a dispute over highly controversial "carbon tariffs," which would in theory apply to imported products based on the carbon-intensity of their production process. As you'll recall, both the US and EU have flirted with the idea of imposing carbon tariffs as part of their broader climate change mitigation policies, while developing countries like China and India have promised to immediately challenge such measures at the WTO.